Community Color

The Non-Profit Paradox

I had a troubling realization a few years ago. I realized that many of the most powerful and wealthiest people I know made their money through 503c non-profit organizations.

For example, the NFL is a registered non-profit. The people who own football teams are rich as sin. The owners of NFL teams have immense power and receive tons of cash from local communities. The tax status simply allows rich people who own football teams to get rich faster than people engaged in productive work.

I would also like to point out that the extremely powerful lobbying organizations that invest Capitol Hill are usually organized as non-profit organizations.

Politicians get rich because their activities are usually tax free. Tax-exemptions for non-profits mean that the politicians who pass taxes don't have to bear the full brunt of taxation like the working stiffs of the world.

The non-profit industry is actually a paradox.

The great paradox of the non-profit world is that the primary reason people file for for non-profit status is to protect profits from tax collectors. I need to repeat this: Non-profit tax status by the IRS was designed to protect profits.

Let's imagine an organization that does good for goodness sake. Because it passes through costs, the organization never makes a monetary profit. Because it doesn't make a profit, it doesn't have to pay taxes.

The only reason to file for non-profit status is when there are people who want to shelter income from taxation.

Imagine a rich person donating to a charity. The charity does not receive the tax break. The rich person donating to the charity gets the tax break.

Imagine a fund raising dinner that charges a $1,000 per plate. Poor people and rich people would both have to pay $1,000 to attend the event. The rich person gets to deduct the expense.

Charities might benefit indirectly from the deduction if it encourages rich people to donate more; However, there is one nasty thing that takes place. The way we calculate deductions seems to magnify the influence that the rich have on charities.

Many lower and middle class people do not track their deductions. The rich do and they demand receipts. This accounting structure gives the false impression that the rich are giving more than they actually are.

I know many poor and middle class people who engage in volunteer work. Charities do not track volunteer work as rigorously as they do the donations from the rich, giving a false impression that the rich are the ones responsible for the good works of the volunteers.

Business Associations

I've been interested in setting up a business association. Such associations are regulated by section 501(c)(6) of the IRS code. A lobbyist organization is considered a non-profit just like the food bank.

My business association I want to create will define a business model and help set up contracts for use in the business. It will also over see an open source software development project.

The association I want to create will not make any money. Because it is not making money, it doesn't need to be set up as a non-profit.

Here I hearken back to my observation that the reason groups seek non-profit status is because they have profits they want to protect from the tax collector.

Small associations like the thing I want to create don't benefit tax-exempt status. It is the associations that support big business that benefit from the tax shelters.

The NFL is a huge organization. The lobbying firms that infest the Capitol have huge amounts of money.

As I examine the murky waters of business associations it seems to me that non-profit status of business associations benefit the rich to the cost of the people at large.